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San Miguel moves to retain control of company board while former tax commissioner convicted

Philippines food and beverage manufacturing giant San Miguel Corp. (SMC) is nominating all its incumbent directors, including company chairman Eduardo “Danding” M. Cojuangco, Jr., for reelection to th…

Philippines food and beverage manufacturing giant San Miguel Corp. (SMC) is nominating all its incumbent directors, including company chairman Eduardo “Danding” M. Cojuangco, Jr., for reelection to the firm“s board during the company stockholders meeting on 3 May. This is despite a government attempt to wrest control of SMC anew from Mr. Cojuangco. Last week, the government announced its plan to nominate at five new government representatives to the SMC board. Finance Secretary Alberto G. Romulo has also made public the government“s desire to replace Mr. Cojuangco as board chairman. In a preliminary proxy statement filed with the Securities and Exchange Commission (SEC) last week, SMC said it was nominating all incumbent directors, including chairman Mr. Cojuangco, for reelection to the new board. SMC filed the preliminary proxy statement in compliance with SEC“s proxy rule which requires companies to send out proxy notices 15 days before any scheduled stockholders meeting. SMC filed the statement two months in advance, seemingly in anticipation of a board battle with the government. For its part, SEC said SMC should have at least two “independent” directors on its board, in compliance with the requirements of the new Securities Regulation Code (SRC). Under the new law, listed firms are required to have at least two “outside” directors on their boards. “It is now mandatory for listed companies to have two outside directors…or 20% of the company“s board must be non-stockholders and non-owners of the company,” SEC chairperson Lilia R. Bautista said earlier. Among those on the 15-man SMC board are Mr. Cojuangco, vice-chairman Ramon S. Ang, president and chief operating officer Francisco Eizmendi Jr., Manuel Cojuangco, Estelito Mendoza, Gabriel Villareal, Faustino Galang, Inigo Zobel, Social Security System (SSS) president Vitaliano Nanagas, and Government Service Insurance System (GSIS) president Winston Garcia. Mr. Cojuangco owns 20% of SMC, as represented by SMC shares of stock he bought from wealthy businessman Enrique Zobel in 1983. The shares are now under sequestration for allegedly being ill-gotten, but a 1998 Supreme Court ruling allowed Mr. Cojuangco control and voting rights over them. Mr. Cojuangco also enjoys voting rights over a 27% interest in SMC owned by the Coconut Industry Investment Fund (CIIF). This 27% is also sequestered, given government allegations that these shares were bought by a group led by Mr. Cojuangco using coconut levy funds collected during the Marcos administration. PCGG sequestered the Cojuangco and CIIF shares in 1986 and ousted Mr. Cojuangco as SMC chief. He assumed control of SMC only in 1998, after his political protege, Joseph Estrada, became president. In addition to the sequestered shares, the government holds 12% of SMC through SSS and GSIS. Meanwhile, when the government named last week the five personalities it intends to nominate to the SMC board, there were mixed market reactions to the reported nominees. Most analysts gave the thumbs-down to the five nominees for lacking hands-on experience in running a food manufacturing company. An analyst from a foreign brokerage firm also characterized the government nominees as “Ramos boys,” or persons closely associated with former President Fidel V. Ramos. “There“s a whole world of difference between handling a fund management (firm) and running an operating food manufacturing company. It“s a totally different ball game. If they will sit in the board, they might as well bring in people to run it full time. Or they have to leave it to the professional managers running it right now,” the analyst said. In another development, the Sandiganbayan in the Philippines convicted former Internal Revenue Commissioner Bienvenido A. Tan Jr. for graft in connection with his giving unwarranted benefits to San Miguel Corp. (SMC) by compromising its multi-million-peso tax liabilities. The anti-graft court also ordered the Bureau of Internal Revenue (BIR) to collect from SMC the amount of Ps 292,951, 048.93 representing its tax liabilities covering the period from 1 January 1985, to 31 March 1986. As Tan is over 70 years old, the court only sentenced him to suffer a minimum imprisonment of six years to maximum of fifteen years, as required by law. He was also perpetually disqualified from holding public office. Tan was originally charged in the graft case for alleged conspiracy in entering into a compromise agreement with taxpayer SMC, whose Ps 302,951, 048.93 tax liability was reduced to Ps 10 million. The case stemmed from a complaint filed by former congressman Bonifacio Gillego, which had been prepared by the Fact-Finding and Intelligence Bureau (FFIB) of the Office of the Ombudsman. In its reply, SMC protested that the alleged tax deficiencies had already been paid when BIR approved SMC“s request that its excess ad valorem payments be applied to its specific tax balance. It added that the computation made was erroneous. The protest was denied by the BIR in a letter duly signed by Tan himself but the original assessment of Ps 342,616,217.88 was reduced to Ps 302,951,048.93 due to the crediting of the tax deposit of Ps 21,805,409.10. On 31 August 1988, SMC, through its vice president and comptroller, offered the amount of Ps 10 million for the settlement of the assessment which was accepted by then BIR officials through a recommendation approved by Tan. Public prosecutors filed a case against him, saying that “the circumstances surrounding the controversy was tainted with irregularity and the compromise appears to be manifestly and grossly disadvantageous to the government.”

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